Analysing the spillover effects of the South African Reserve Bank’s bond purchase programme
Last Modified Date:
2022-03-17, 10:09 AM
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Using daily bond purchase volume data, we evaluate the effects of the South African Reserve Bank’s bond purchase programme on the term structure of the sovereign bond yield curve. Our results indicate that bond purchases significantly flatten the slope and lower the curvature of the sovereign bond curve by 4 bps and 10 bps respectively on impact; however, we find that bond purchases increase the level factor. The latter result is attributed to the increased sovereign risk stemming from the significant fiscal stimulus measures announced around the same period. We also examine how the programme’s announcement influenced South Africa’s corporate bond market using the FTSE/JSE All Bond Other Index and find its price lowered following the announcement, but that the Federal Reserve’s QE announcement had a larger, opposite-signed effect. We interpret this result as evidence that US macroeconomic conditions play an important role in determining South African market responses, and suggests that optimal South African market-easing strategies would benefit from accounting for both domestic and international conditions.